Friday, August 03, 2012

The Break-up, it’s kind of complicated

Lease breaks, you may not like them but it’s a cold hard truth to a lot of tenancies. Situations change, minds change and before you know it you're out of your comfortable position and back looking for a new tenant.
So these are the facts, as a landlord your tenants are allowed to break their lease what ever the reason may be. However consequences do apply in accordance with the regulations stated within the Residential Tenancies Act. 
As a landlord your investment property is a “business” always keep this in mind with managing it. The tenants are your “clients” they have rights as much as you do, although they may differ in ways.
“Where the agreement is for a fixed period and the tenant leaves before the expiry date, the landlord may claim for loss of rent until the premise is relet, pro-rata advertising costs and other compensation which may arise under the agreement, such as a proportion of reletting fees charged to the landlord by an agent. Under these circumstances, the landlord has an obligation to relet the premises as soon as possible.” (OCBA)
The landlord must take reasonable steps to mitigate any loss the tenant may suffer and is not entitled to compensation for loss that could have been avoided by those steps. The importance of taking “reasonable steps”  Is highly important in a lease break situation. You may feel comfortable knowing that your tenant breaking lease is still paying the rent but it must be shown that you are actively seeking a new tenant to take over the lease or you may not get any compensation brought on by the lease break.
In order to be actively seeking a tenant you need to advertise in at least one form of print media as well other medium (generally the internet). However by law you do not need to start advertising until the tenant has handed back the keys and vacated the property. You will find most agents will advertise immediately once notice has been given by the tenant. This is because it will enhance the prospect of finding a new tenant leaving less likelihood of the property being vacant which in turn will help mitigate the tenants costs.
If you are receiving no enquiries for your property you may consider aligning the price with the market and negotiating with the lease break tenant to pay a portion (difference between previous rent and new rent) to the end of the original lease date. It is generally recommended that you decrease the rent every 3-4 weeks until a new tenant is found in a lease break situation.
If you are receiving applications which could be suitable to your property but are not accepting them due to personal preference as to who you think should be in the property (not necessarily the market your property appeals to) you may be seen in the eyes of the tribunal to not be alleviating the tenant’s costs. If the tenant wants to take you to tribunal for this reason it may be ruled that the tenant is allowed out of the lease break without costs and/or there is a chance you have to pay back all received monies to the tenant.  

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